State Attorneys General Settle With TurboTax Maker Over Free Tax Preparation Services – Advertising, Marketing & Branding
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Earlier this week, 50 states and D.C. obtained a $141
million settlement with Intuit related to its
advertising of free and freemium TurboTax products. This
settlement, which took the form of an Assurance of Voluntary
Compliance (a special kind of settlement authorized by many state
unfair and deceptive trade practice laws), concluded a three year
investigation of the company, and is an example of a bipartisan and
nearly unanimous effort among state AGs to address a consumer
protection matter. However, it came as a precursor to several state
AGs pulling out of the National Association of Attorneys General
signaling division within the State AG community.
The Attorneys General alleged facts similar to the
FTC’s suit on March 29, 2022 in their findings.
In that case, the FTC had filed an administrative action alleging
FTC Act violations, while simultaneously filing a federal district
court action seeking a temporary restraining order (TRO). The
hearing on the TRO didn’t go so well for the FTC, and
the judge denied the FTC’s request a day later
– noting that the “emergency” need for relief (tax
day) had passed; that Intuit had already halted some of the alleged
violations; and that the administrative case could address any
continuing violations. It is notable that the States have chosen to
settle their case while the FTC continues its fight on its own,
especially since the settlement could render some or all of the
FTC’s case moot. (And indeed, in a motion to the FTC filed just
after the State settlement was announced, Intuit is seeking withdrawal of the FTC’s
administrative action on both procedural and mootness grounds.)
The settlement requires that when advertising a product as free,
Intuit disclose the existence of material limitations and that not
all taxpayers qualify, “clearly and conspicuously, and in
close proximity to the representation that the product is free. .
.” Demonstrating some flexibility, the States include special
provisions for space-constrained ads, which must disclose that
eligibility requirements apply and provide a link to the full
disclosure online. Video ads require an audible disclosure in
addition to written, unless shorter than 8 seconds. However, the
States have enjoined altogether the use of certain ads repeating
the word free.
Intuit also must intentionally design its software to determine
at the earliest point possible that a person doesn’t qualify to
use a free product and make disclosures accordingly. The Attorneys
General further required data portability, insuring data from any
paid upgrade be transferable to the free product.
The $141 million payment will be placed into a Settlement Fund,
which will be run by a Fund Administrator and governed by an
Oversight Committee made up of FL, IL, NJ, NY, NC, PA, TN, TX, WA.
While the Settlement Fund will pay restitution to consumers,
amounts for the cost of administration and for the attorneys’
fees and costs for the States will come out of that Fund. And while
there is an initial allocation schedule attached, it is there for
“informational purposes only” since the actual amount
flowing to each State and its consumers is ultimately still subject
to determination by the Oversight Committee.
Importantly, some key takeaways from the settlement for
companies to consider include:
- Make sure “freemium” product advertising fully
discloses offer limitations and eligibility requirements from the
- Avoid “dark patterns” that may dissuade customers
from taking an available free option;
- Don’t overuse the word free especially without accompanying
disclosures in close proximity.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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